Due to low profitability, metallurgists switched to the production of other types of products
Pig iron deliveries to Russian ports for export shipments in January-July 2024 amounted to 1.32 million tons, which is 30% less than the figure for the same period last year. This follows from data from the industry agency Metals & Mining Intelligence (MMI), which Vedomosti has reviewed.
The bulk of pig iron (about 90%) goes abroad by sea, the rest – by rail through border crossings. Vedomosti sent a request to Russian Railways.
The key buyers of Russian pig iron this year, as last year, remained Italy and Turkey, with “periodic” transactions in the Asian region, MMI analysts write. At the same time, they note that pig iron shipments from Russia are under pressure from low export prices.
The minimum price for pig iron was recorded in July last year – $330 per ton on a FOB basis (delivered on board) Black Sea. After that, prices began to recover, remaining in the range of $340-360/t until the end of November. With the onset of winter, a more stable increase in prices was observed, and in January 2024, quotes reached $400/t. Since the beginning of this year, pig iron has risen in price by another 2.5% and was sold at $410 in July.
Taking into account the exchange rate export duty, railway tariff for transportation, sea freight and discounts on Russian metal, the profitability of deliveries abroad in the first half of the year could be negative, notes Maxim Khudalov, chief strategist at the investment company Vector X.
The “bearish” trend forced manufacturers to switch to the production of other types of products, according to the MMI review. It is also noted that maintaining the current level of production costs will restrain a further fall in quotes. Absolute figures for the cost of production are not given in the review. By the end of summer, prices, according to MMI forecasts, may fall to $365-375/t. At the same time, Khudalov predicts that by the end of the year, pig iron prices may rise to $430-440/t FOB Black Sea if the key rate in the USA is reduced.
The largest Russian pig iron producers are NLMK, Ural Steel, PMH, Evraz, Severstal and MMK. Representatives of the latter two told Vedomosti that they do not currently export pig iron, using it only for their own steel production. Other companies did not respond to inquiries. Vedomosti also sent questions to the press service of the Ministry of Industry and Trade.
According to the latest data from the World Steel Association (WSA), global pig iron production fell by 1.8% year-on-year to 704 million tonnes in January-June 2024. The leaders were China with 435.6 million tonnes of output, India with 70.3 million tonnes and Japan, which produced 30.6 million tonnes. Russia was fourth with 46.7 million tonnes (-3% year-on-year).
Among the main reasons for the decline in pig iron exports from Russia, Khudalov cites a decline in domestic production in Russia and a decline in economic activity among key buyers. “Pig iron exports are expected to grow to 2.8 million tonnes by the end of the year, despite the narrowing market and the unlikely return of the US to purchases from Russia,” Khudalov predicts.
About half of Russian pig iron exports traditionally went to the US, where 70% duties on most metals of Russian origin were introduced in March 2023, which effectively became prohibitive. In addition, in 2022, after the start of the SVO in Ukraine, the EU imposed restrictions on supplies from Russia of a number of metallurgical products, including cast iron.
According to Khudalov, the abolition of the export duty “slightly improved” the economy of exporters. Since October 2023, the Russian government has introduced duties tied to the dollar exchange rate of 4-7%. But from July 1 to August 31, the Cabinet of Ministers temporarily suspended duties on cast iron and a number of other products of metallurgists.
Boris Krasnozhenov, Head of Securities Analytics at Alfa Bank, believes that the temporary abolition of the duty could also lead to an increase in the number of cast iron suppliers on the Russian market, which puts additional pressure on supply prices.
At the same time, Krasnozhenov notes that Russian companies have one of the lowest costs of smelting cast iron and producing steel blanks in the world due to high raw material integration. According to the World Steel Dynamics research center, Severstal and NLMK are among the top 10 most efficient global steel producers (23 parameters are used for the assessment, including production costs and energy efficiency).